FIRE-itis. An imaginary disease that when afflicted, causes the infected to pursue early retirement immediately regardless of their financial readiness. Full-time employment is no longer an option.
I figured that it would be a fun exercise to write about. The focus would likely shift from one that focused on asset accumulation to cash-flow and sustenance.
Number one of my worries is definitely my parents. With no kids to worry about (except our World Vision daughter we’re supporting), I can focus my efforts singularly at supporting my parents.
I have mentioned a few times that I have previously transferred $40,000 of my CPF-OA money to my mum to enable her to withdraw $300 monthly for life. This is a strategy (slowly ensuring my parents’ worry-free retirement) that I have begun to pursue even prior to this exercise, assuming that for some reason I’m no longer around to provide for them.
Likewise, I would do the same for my dad to secure another risk-free stream of income.
Combining both streams of income would get a total of $600 of cash withdrawals from CPF monthly for life. How would $600 be enough? It is not.
A recent study year concluded that a single elderly person living in Singapore requires $1,379 a month for basic needs. For a couple, the number is closer to $2,300.
Luckily, my parents have pretty good tenants and that gets them another $900 monthly. Read about my experience here when I was helping them out with the process. In light of the current situation, tenant income can be spotty but thankfully, logistics-related industry is doing OK and has not affected them.
In total, combining the three streams of income (CPF + CPF + rental) will allow them to receive $1,500 in total cash-flow per month. This is possible even when I’m not longer able to contribute any form of allowance to them in the short-run. This $1,500 is critical for sustenance and enables them to minimize drawing down any of their savings for daily expenses.
Their five-figure sums in CPF-MA and hospitalization plans will go a long way towards cushioning their health-care needs.
In addition, I have yet to mention my wild card which comes in form of my big brother who will also contribute towards my parents’ needs. Assuming just another $500 from him, we’re probably looking at $2,000 total which would be comfortable for two-pax although it isn’t luxurious.
2. CPF and Debt
As mentioned at the start of this blog post, FIRE-itis will essentially change the focus from accumulation to sustenance and cash-flow.
Without a doubt, CPF would be a cornerstone of tackling this bout of FIRE-itis.
Right now, I have about $192,000 in my CPF-OA and CPF-SA, inclusive of funds that I have already transferred or yet-to-transfer to my parents. Out of the $192,000, $75,000 is currently sitting in my CPF-OA account.
How would I allocate this precious $75,000 if it is even possible to use it somehow?
Indeed, I can use it! Firstly, $40,000 would be transferred to my dad’s CPF-RA account as per what I’ve written earlier.
Next, I will take another $15,000 and transfer it to my parents’ CPF-RA as well, spreading them out to take full advantage of the extra interest in the first $60,000 in CPF. This $15,000 would be used generate a stream of income i.e. maybe $100/month for myself, by using my parents as withdrawal faucets to funnel money out of my own CPF-OA.
Desperate times call for desperate measures eh?
The remaining $20,000 would stay in my CPF-OA and would easily pay for another five years worth of HDB loan payments. It is good to know that the first $20,000 of CPF-OA earns 3.5% interest vs 2.6% interest incurred for the loan.
The only debt I have is my HDB loan and my portion of it stands at about $65,000 now. No immediate worries in the short-term.
Breakdown of $75,000 CPF-OA usage:
- $20,000 for HDB loan payments
- $40,000 for parents (income via CPF life)
- $15,000 for self (income via CPF life)
3. Cash-flow Situation
After taking care of dependents and debt, the trickiest issue left to handle is cash-flow. Considering the above, we have managed to squeeze $100 out of CPF which is a bonus to begin with.
To be honest, I haven’t quite come up with a half-decent plan for this. Or perhaps, do I even need to?
In my first quarter of 2020, I wrote in my income report that I managed to bring in an average of $721.25 per month that does not result from full-time employment which is OK but not quite enough yet.
Even my zombie apocalypse budget requires a bare minimum of $1,000 on a monthly basis, and that’s merely covering food, transport, services and insurance with nothing set aside for travel or quality-of-life expenses.
My answer would likely be in geo-arbitrage. I’m going to have to use all my assets to generate income – including the property I’m living in.
HDB data indicates that 4-room apartments are renting for $2,000 in my estate. Assuming a conservative scenario, I rent it out at $1,750 and allocate $250 for miscellaneous expenses and fees. This would mean pocketing $1,500 each month.
Oh yes, I’d need a place to live now – although I have money, all $2,300 of it, in my pocket now –
- CPF – $100
- Alternative Income – $700
- Rental Income – $1,500
The above estimate was put together without any form of optimization. Instead of zombie apocalypse budget, we are now closer to the region of “economy rice” or “cai png” budget which is really nice.
The huge assumption is that there are no travel restrictions, of course. I have a few locations in my Google Sheets but let’s take Bali as an example. Renting a nice place for mid/long-term stay can range from $500 to $1,000 easily depending on the type of accommodation and amenities provided.
Let’s not scrimp on our living environment and go with $800 for a start. This leaves me with $1,500 which isn’t fantastic but believe, more than enough for the very comfortable living in Bali.
For a start, that is.
And so – my two major trump cards have yet to be discussed.
To me, the idea of financial independence has never, ever been one of slacking around and doing nothing all day long. Instead, it is about having the freedom to indulge in what we would like to do. My flavour of retirement is specific and relevant to myself only.
First of all, I do recognize that my alternative income is currently generated entirely from my free time outside of my salaried job, doing things that I enjoy. Without a full-time job, I now have total 24/7 (did someone say freedom?) to decide how and what to dedicate my time to – which is immensely exciting, to say the least! In all likelihood, the amount of alternative income generated would likely continue to increase.
Second – I have not mentioned my wife’s role yet. My budget is based on two-pax, and she is free to choose what she wants to do with her time. If she wishes to engage in activities that bring in some extra income, that would potentially elevate our budget to “luxe life” edition and allow us resume asset building, travel in some capacity and further strengthening of our financial situation.
Obviously, I haven’t really thought about optimizing our portfolio into one that is dedicated to generating cash-flow and instead, relied on my sub-optimal numbers. Otherwise, I can expect to have numbers that is easily a fair bit higher. The positive takeaway is that we can indeed live very comfortably despite this handicap.
Also, the nitty-gritty details of living abroad hasn’t really been fleshed out properly. However, I do expect hidden costs to be manageable and easily negated by portfolio optimization mentioned previously.
This mini exercise was very fun to write about and perhaps one that you can perform for yourself! Putting target numbers and 4% safe withdrawal rate aside, we have an rough idea of where exactly we stand in relation to our FIRE goals.
If the idea of financial independence, retire early (FIRE) appeals to you, I have a curated list of FIRE blogs that I enjoy reading. My personal blueprint for financial independence and recommended reads can help you to kick-start your own FIRE journey.